Meadow CreekNews

Would You Benefit From a Business Incubator?

Filed under Venture Capital and Start Ups on December 24, 2010

It seems every town, school and entrepreneur is taken with the idea of a business incubator. Each party is hoping to make money off of the deal while serving a noble cause by providing a variety of different elements to promote entrepreneurial growth. I have not yet seen an example of a business incubator with sustained results.
Cities are hooked on the idea of business incubators as a way to foster economic growth. Quite often this is done in cooperation with a local college is eager to build community relations and ultimately make some money off providing training.
One of the first decisions they confront is how to pay for it. The city will often feel that it is imperative to offer entrepreneurs free or highly subsidized assistance to increase their chances of survival. While its a nice thought that with a little boost, entrepreneurs would have a much improved survival rate it doesn’t really address the real causes of failure.
Incubators can provide a serious work environment, a professional facade of legitimacy to the outside world, training, , consulting, mentoring and camaraderie. Trying to offer these things for free or on a highly subsidized basis is often the death nell for such efforts. Even properly incubated, the majority of new businesses will fail and the taxpayers will want to know why they’re throwing good money after bad. Also, sustaining the expense of a business incubator through tough times is nearly impossible for a city.
Businesses are like kids, they’re cute when they’re little, but they can get ugly when they grow-up. Cities hoping to create economic vitality and a growing tax base through incubating businesses can be horrified by the results. Successful businesses do provide jobs and tax base. They also create pollution, traffic congestion and stress the infrastructure. On top of all that, if they’re really successful, they’ll be asking for tax breaks abatements and other considerations to stick around. Your bouncing baby business is suddenly a teenager.
Experts say entrepreneurs fail for several reasons:
Going into business for the wrong reason
Lack of business experience
Lack of industry experience
Lack of funding
Incubators can weed out the people starting a business because they want more free time. They are bound for failure and that would truly be throwing good money after bad. A simple conversation can usually identify who is going into business because of the combination of the entrepreneurial spirit and sound idea and who just doesn’t want to have to take orders from a boss.
Business incubators can provide training and mentoring to help with business and industry experience. This is possibly the most important function of an incubator. Not too many people have a broad based business experience. Putting them in a situation where they are the CEO, CFO, COO, CTO, sales person, engineer, production and maintenance person can be overwhelming.
They can also weed out those that simply do not have the financial resources to get their business off the ground. One of the easiest ways to do this shy of requiring a personal financial statement, is to charge for services and see who falls out of line. Services can be provided at an initial discount or just packaged in affordable ways.
Funding can also be assisted by consulting and mentoring on putting the basic business plan, marketing literature, financial projections and offering statement together. Education on the sources of venture capital and business loans is another key contribution of incubators.
As an owner of a business center, I’ve been asked to create a business incubator many times. I have finally succumbed to this idea. I’d be interested in hearing from entrepreneurs their ideas about business incubators and what services they would find most important.
Richard Gabel

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